Attached files
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM
10-K/A
Amendment
No. 1
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the Fiscal Year Ended March 31, 2010
Commission
File No. 0-24624
CHINDEX INTERNATIONAL,
INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
13-3097642
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization)
|
4340 East
West Highway, Suite 1100
Bethesda,
Maryland 20814
(301) 215-7777
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.01 par value and associated Preferred Stock Purchase
Rights
Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No [ x
]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [ x
]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ x ] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [ ] No
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ] Accelerated filer [
x] Non-accelerated filer [ ] Smaller reporting
Company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [
x ]
The
aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of September 30, 2009 (the last business day of the
registrant’s most recently completed second fiscal quarter) was approximately
$165,606,856.
The
number of shares outstanding of each of the registrant’s class of common equity,
July 13, 2010, was 13,765,611 shares of Common Stock and 1,162,500 shares
of Class B Common Stock.
INTRODUCTORY
NOTE
Chindex
International, Inc. (the “Company,” “Chindex,” “we,” “us” or “our”) is filing
this Amendment No. 1 on Form 10-K/A to our Annual Report on
Form 10-K for the fiscal year ended March 31, 2010 (the “Report”) for the
purpose of including information that was to be incorporated by reference from
our definitive proxy statement pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). We will not file our
proxy statement within 120 days of our fiscal year ended March 31,
2010, and are, therefore, setting forth Items 10, 11, 12, 13 and 14 of Part III
of the Report. We anticipate filing our definitive proxy statement in
August 2010 for our 2010 Annual Stockholder Meeting, which is currently
scheduled to be held on September 28, 2010. In addition, in
connection with the filing of this Amendment and pursuant to Rules 12b-15
and 13a-14 under the Exchange Act, we are including with this Amendment
currently dated certifications. Except as described above, no other amendments
are being made to the Report. This Form 10-K/A does not reflect events
occurring after the June 14, 2010 filing of the Report or modify or update
the disclosure contained in the Report as amended in any way other than as
required to reflect the amendments discussed above and reflected
below.
-1-
PART
III
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
directors and executive officers of the Company and their present positions with
the Company are as follows:
Name
|
Positions with the
Company
|
Kenneth
A. Nilsson(1)(2)(3)
|
Chairman
of the Board of Directors
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Roberta
Lipson
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President,
Chief Executive Officer and Director
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Elyse
Beth Silverberg
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Executive
Vice President, Secretary and Director
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Lawrence
Pemble
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Director
|
Robert
C. Low
|
Vice
President, Finance, Chief Accounting Officer and
Controller
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Holli
Harris(1)
|
Director
|
Carol
R. Kaufman(1)(2)(3)
|
Director
|
Julius
Y. Oestreicher(1)(2)(3)
|
Director
|
_________________
(1)
|
Member
of the Audit and Finance Committee.
|
(2)
|
Member
of the Compensation Committee.
|
(3)
|
Member
of the Governance and Nominating
Committee.
|
All
directors of the Company hold office until the next annual meeting of the
stockholders and until their successors have been elected and
qualified. The officers of the Company are elected by the Board of
Directors at the first meeting after each annual meeting of the Company’s
stockholders and hold office until their successors have been chosen and
qualified.
Set forth
below is certain information with respect to each director and executive
officer:
ROBERTA LIPSON, 55, co-founded
the Company in 1981. Ms. Lipson has served as the Chief Executive
Officer and a Director since 1981, and as the Chairman of the Board of Directors
from 1981 until 2004. From 1979 until founding the Company in 1981,
Ms. Lipson was employed in China by Sobin Chemical, Inc., a worldwide trading
company, as Marketing Manager, coordinating marketing and sales of various
equipment in China. Ms. Lipson was employed by Schering-Plough Corp.
in the area of product marketing until 1979. Ms. Lipson received a
B.A. degree in East Asian Studies from Brandeis University and an MBA degree
from Columbia University Graduate School of Business. Ms. Lipson’s
decades of experience with the Company and her prior education and experience
related more generally to marketing in China make her a valuable member of our
Board of Directors.
ELYSE BETH SILVERBERG, 53,
co-founded the Company in 1981. Ms. Silverberg has served as the
Company’s Executive Vice President and Secretary and as a Director since that
time. Prior to founding the Company, Ms. Silverberg worked with Ms.
Lipson at Sobin Chemical, Inc. from 1980 to 1981 and was an intern in China with
the National Council for U.S.-China Trade from 1979 to 1980. Ms.
Silverberg received a B.A. degree in Chinese Studies and History from the State
University of New York at Albany. Ms. Silverberg’s decades of
experience with the Company and her prior education and experience related to
China make her a valuable member of our Board of Directors.
LAWRENCE PEMBLE, 53, joined
the Company in 1984 and has served as Executive Vice President and Chief
Financial Officer since January 1996. From 1986 through April 1992 and
September 1993 to the present, Mr. Pemble has also served as a Director of the
Company. Prior to joining the Company, Mr. Pemble was employed by China
Books and Periodicals, Inc. as Manager, East Coast Center. Mr. Pemble
holds a B.S. degree in Business and Accounting from the University of Phoenix
and B.A. degree in Chinese Studies and
-2-
Linguistics
from the State University of New York at Albany. Mr. Pemble’s background
in business and finance coupled with his prior education and experience relating
to China makes him a valuable member of our Board of Directors.
KENNETH A. NILSSON, 77, has
served as a Director of the Company since January 1996 and the Chairman of the
Board of the Company since October 2004. Mr. Nilsson formerly served
as President of Cooper Laboratories, Inc.; President of Cooper Lasersonics,
Inc.; Managing Director of Pfizer Taito Ltd.; President of Max Factor, Japan;
and Chairman of the Monterey Institute of International Studies. Mr.
Nilsson received a B.A. degree from the University of Southern California and an
M.A. degree from the University of California. Mr. Nilsson’s
extensive business experience, including experience in the medical and
international areas, make him a valuable member of our Board of
Directors.
HOLLI HARRIS, 43, has served
as a Director of the Company since August 2004. Ms. Harris worked for
the U.S. State Department at the U.S. Embassy in Moscow, and has since served in
financial and strategic management positions in the energy, banking, biotech and
automotive industries. In 2003, Ms. Harris was a Financial Analyst
with Amgen Inc., an international biotechnology and pharmaceutical
firm. From 2004 to 2008, Ms. Harris was a Financial Manager at Corbis
Corporation, an international visual and image solutions
provider. Ms. Harris currently is a small business owner and an
independent business strategy and process consultant. Ms. Harris has
a dual degree in Russian Language and International Relations from the
University of California - Davis and an MBA degree in Finance from the
University of Michigan. Ms. Harris’s extensive experience in finance
and strategic planning and her background in international matters make her a
valuable member of our Board of Directors.
CAROL R. KAUFMAN, 61, has
served as a Director of the Company since November 2000. Ms. Kaufman
has been Vice President and Chief Administrative Officer of The Cooper
Companies, Inc., a medical device company, since October 1995 and was elected
Vice President of Legal Affairs in March 1996 and was elected Senior Vice
President in October 2004. From January 1989 through September 1995,
she served as Vice President, Secretary and Chief Administrative Officer of
Cooper Development Company, a healthcare and consumer products company that was
a former affiliate of The Cooper Companies, Inc. Ms. Kaufman received
her undergraduate degree from Boston University. Ms. Kaufman’s
extensive business experience, particularly in the medical device industry in
light of the importance of the medical products industry to the Company, makes
her a valuable member of our Board of Directors.
JULIUS Y. OESTREICHER, 80, has
served as a Director of the Company since January 1996. Mr.
Oestreicher has been a partner with the law firm of Oestreicher, Ennis,
Dalrymple & Dalrymple, LLP and its predecessor firms for more than thirty
years, engaging primarily in estate, tax and business law. Mr.
Oestreicher received a B.S. degree in Business Administration from City College
of New York and a J.D. degree from Fordham University School of
Law. He is also a Certified Public Accountant. Mr.
Oestreicher’s background in tax and business law and his knowledge of accounting
and finance make him a valuable member of our Board of Directors.
ROBERT C. LOW, 55, joined the Company
in September 2008 and has served as Vice President, Finance, Chief Accounting
Officer and Controller since November 2008. Prior to joining the
Company, Mr. Low was employed by Middlebrook Pharmaceuticals, Inc., which
develops anti-infectious drug products, from 2006 to 2008 as Vice President,
Chief Financial Officer and Treasurer and from 2003 to 2006 as Corporate
Controller. In April 2010, Middlebrook Pharmaceuticals filed a
voluntary petition for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code. Prior to his employment at Middlebrook, Mr. Low
worked in various capacities in public and private accounting. Mr.
Low is a Certified Public Accountant, holding a B.A. degree in Economics from
the University of Pennsylvania and an MBA degree in Finance from the University
of Houston.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers, and persons who own more than 10% of the
Company’s Common Stock, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the Company’s knowledge, based
solely on a review of the copies of such reports furnished to the Company during
fiscal 2010, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% stockholders were complied with except one filing
reflecting four transactions by Ms. Harris and one filing reflecting three
transactions by Ms. Lipson.
-3-
Code
of Business Conduct
The
Company has adopted a Code of Business Conduct, which is applicable to all of
its directors, officers and employees, including the principal executive
officer, the principal financial officer and the principal accounting
officer. Certain sections of the Code are also applicable to the
Board of Directors. The Code is available on the Company’s website at
www.chindex.com. The
Company intends to post amendments to or waivers from the Code to the extent
applicable to its principal executive officer, principal financial officer or
principal accounting officer.
Shareholder
Nominating Procedures
The
Governance and Nominating Committee of the Board of Directors will consider
shareholder recommendations for candidates for the Board. The name of
any recommended candidate for director should be sent to the attention of the
Secretary of the Company, together with a brief biographical sketch of the
proposed nominee, a description of the proposed nominee’s qualifications and
expected contributions to the Board, the information required to be included in
a proxy statement with respect to a nominee for director, a document indicating
the candidate’s willingness to serve, if elected, a description of the
relationships between the proposed nominee and the recommending shareholder, and
evidence of the recommending shareholder’s ownership of Company
stock. In order for a shareholder recommendation to be considered by
the Governance and Nominating Committee, the recommendation and related
information must be received by the Company no later than 120 calendar days
before the anniversary of the date of the proxy statement for the prior annual
meeting (i.e. by April 21, 2011 for the 2011 annual meeting).
Audit
and Finance Committee
The
current members of our Audit and Finance Committee are Ms. Harris (Chair), Ms.
Kaufman, Mr. Nilsson, and Mr. Oestreicher, each of whom meets the independence
requirements for audit committee members under SEC rules and the listing
standards of The Nasdaq Global Market. Additionally, the Board has
determined that each of Ms. Harris, Ms. Kaufman, Mr. Nilsson, and Mr.
Oestreicher is an audit committee financial expert as defined by SEC
rules.
-4-
ITEM
11. EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Overview
of Compensation Program and Philosophy
Our
compensation program is intended to:
·
|
attract,
motivate, retain and reward employees of outstanding
ability;
|
·
|
link
changes in employee compensation to individual and corporate
performance;
|
·
|
facilitate
the development of a progressive, results-oriented high performance
culture;
|
·
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provide
opportunities for employee involvement, development and meaningful
contribution;
|
·
|
support
the achievement of annual and long-term financial and strategic goals by
rewarding employees for superior results;
and
|
·
|
align
employees’ interests with those of the
stockholders.
|
The
ultimate objective of our compensation program is to improve shareholder
value. In furtherance of that objective, we evaluate both performance
and compensation of employees to ensure that we maintain our ability to attract
and retain employees and that compensation provided to employees remains
competitive relative to the compensation paid to similarly situated employees of
perceived comparable companies in the marketplace. The Company
historically has believed and continues to believe that it cannot reasonably
identify peer issuers on an industry or line-of-business basis principally due
to the Company’s size and unique combination of two business segments: the
operation of Western medicine healthcare facilities in China and the marketing,
distribution and sales of medical equipment in China on behalf of
manufacturers. As such, we do not believe that we have a peer group
against which to compare and from which to directly and empirically derive a
basis for our compensation program. We do, however, generally
consider entities with similar equity market capitalizations in making
compensation decisions.
The above
policies guide the Compensation Committee of our Board of Directors (the “Committee”) in
assessing the compensation to be paid to our executive officers. The
Committee endeavors to ensure that the total compensation paid to executive
officers is fair, reasonable, competitive and consistent with our compensation
policies. The above policies also guide the Committee as to the
proper allocation between long-term compensation, current cash compensation, and
short-term bonus compensation.
Role
of Executive Officers in Compensation Decisions
The
Committee reviews and approves the compensation paid to Ms. Lipson, our
President and Chief Executive Officer. The President and Chief
Executive Officer recommends to the Committee the compensation paid to
Ms. Silverberg, Executive Vice President and Secretary, and to
Mr. Pemble, Chief Financial Officer and Executive Vice
President. Following a review of such recommendations, the Committee
approves compensation for such officers in an amount the Committee deems
reasonable and appropriate. The salary and bonus of Mr. Low, Vice
President, Finance and Controller, is determined by the Chief Financial Officer,
subject to the approval of the President and Chief Executive Officer. The equity
compensation of all of our executive officers, including Mr. Low, is determined
by the Committee based on the recommendations of management.
Management
plays a significant role in the compensation-setting process for executive
officers by:
·
|
recommending
financial performance metrics for the Company’s annual Executive
Management Incentive Program (“EMIP”) based on the Company’s overall
business plan and budget as approved by the
Board;
|
·
|
providing
the Committee with quantitative calculations of such awards based on the
Company’s operating results;
|
·
|
recommending
individual non-financial goals under the EMIP, subject to approval by the
President and Chief Executive Officer and the
Committee;
|
·
|
providing
a self-assessment of the extent to which the individual non-financial
goals were achieved, which assessment is commented on by the President and
Chief Executive Officer;
|
·
|
recommending
salary levels, bonuses and equity-based awards;
and
|
·
|
determining
the salary and bonus of the Vice President, Finance and
Controller.
|
-5-
Management
also prepares meeting information for most Committee meetings, and the President
and Chief Executive Officer participates in certain Committee meetings at the
Committee’s request to provide background information regarding our strategic
objectives, evaluation of the performance of the executive officers, and
compensation recommendations as to executive officers (other than the President
and Chief Executive Officer).
Setting
Executive Compensation
The
Committee structures executive compensation with an aim to motivate our
executive officers to achieve our business goals and reward executive officers
for achieving such goals.
In making
compensation decisions, the Committee believes that information regarding pay
practices at other companies is useful, but not determinative, because the
Committee believes that we have no directly comparable peer companies and
recognizes that our compensation practices must be competitive in the
marketplace in general.
In fiscal
2010, the Committee did not engage a consultant to provide advice regarding
compensation matters. However, the Committee reviewed survey data
prepared in March 2009 by a nationally-recognized compensation data
service. The data provided information about cash compensation levels
of specified officer positions at comparable size companies in each of the two
broad industries in which the Company operates -- (i) general medical and
surgical hospitals and (ii) medical and hospital equipment. The
information was provided on an aggregate basis for companies within these
industries, without referring to individual companies. This
information was deemed to be only generally applicable, both because the
functions of our executive officers do not directly match the specified officer
positions reflected in the survey data and because the Company’s operations are
not directly comparable to any single industry. The Company operates
in several different healthcare markets in China, primarily (i) providing
healthcare services through owned and/or operated hospitals and clinics and (ii)
marketing and selling medical capital equipment and other medical products for
use in hospitals. We believe that we are the only foreign-invested,
multi-facility hospital network in China. We have not identified any comparable
entities having a substantially similar mix of operations and size in China.
Although we used the compensation data service described above as an informal
guide, we did not numerically or objectively benchmark against any of the data
contained therein in any material respect. The principal use of the
service was as a reference to perceived generally comparable
positions. The Committee exercised broad discretion in whether and to
what extent (if at all) to use the information from the service. In
making its compensation decisions in fiscal 2010, the Committee also considered
other information, such as informally-perceived compensation opportunities
available to our employees in the marketplace.
The
Committee relies upon its judgment and, when appropriate, management’s judgment,
of each individual executive officer in determining the amount and mix of
compensation elements and whether each particular payment or award provides an
appropriate incentive and reward for performance that sustains and enhances
stockholder value. Key factors affecting this judgment
include:
·
|
performance
compared to the financial, operational and strategic goals established for
the executive, the Company or an applicable operating
segment;
|
·
|
nature,
scope and level of responsibilities of the particular
executive;
|
·
|
the
executive’s contribution to our financial results;
and
|
·
|
the
executive’s effectiveness in leading and/or carrying out our strategic
initiatives.
|
In
addition, in fiscal 2010, the Committee considered each executive officer’s
current and prior-year salary and bonus, the appropriate balance between
incentives for long-term and short-term performance, the compensation paid to
the executive officer’s peers, if any, within the Company and the
recommendations by the President and Chief Executive Officer as to each other
executive officer.
2010
Executive Compensation Components
For the
fiscal year ended March 31, 2010, the principal components of compensation
for the executive officers were:
·
|
base
salary;
|
·
|
performance-based
annual incentive bonus;
|
·
|
long-term
equity incentive compensation; and
|
·
|
perquisites
and other personal benefits.
|
-6-
Base
Salary
We
provide executive officers and other employees with base salary to compensate
them for services rendered during the fiscal year. In setting base
salaries, the Committee periodically reviews published compensation survey data
for similar size companies. The base salary for each of the executive
officers is guided by the salary levels for perceived comparable positions in
the marketplace, as well as the individual’s personal performance and internal
alignment considerations. The relative weight given to each factor
varies with each individual at the Committee’s discretion. Our overall
anticipated and actual performance and profitability and macro-economic matters,
such as cost of living increases, are also factors in determining the base
salaries for the executive officers.
In March
2010, the Committee increased the base salaries of each of Ms. Lipson, Ms.
Silverberg and Mr. Pemble by 12%, retroactive to January 1, 2010, resulting in
annual salaries for Ms. Lipson, Ms. Silverberg and Mr. Pemble of $362,762,
$326,486, and $302,400, respectively. Ms. Lipson’s and Ms.
Silverberg’s salaries are denominated in Chinese Renminbi (“RMB”) and have been
converted to US dollars (“USD” or “$”) for purposes of this paragraph at the
rate of 6.8263 RMB to $1.00, which was the exchange rate on the last day of the
fiscal year ended March 31, 2010.
In
approving this increase, the Committee considered that since May 1, 2009 Ms.
Lipson has served as chief executive officer of the Company’s Healthcare
Services division in addition to her service as President and Chief Executive
Officer of the Company; that Mr. Pemble has taken on multiple responsibilities,
including investor relations, budgeting, tax, and certain operational
responsibilities in addition to his responsibility for financial reporting; that
Ms. Silverberg has overseen improvements in the performance of the Company’s
Medical Products division; and that all three executives played key roles in
increasing the Company’s financial performance, particularly in increasing
operating income, and in supporting the Company’s strategic
initiatives. The Committee also considered the fact that salaries of
these executive officers had not been increased since January 2008.
Mr. Low’s
salary was determined by the Chief Financial Officer and approved by the
President and Chief Executive Officer. The factors they considered
were Mr. Low’s individual performance, the Company’s performance, and the
Committee’s determinations with respect to salary increases for the other
executive officers. Based on these factors, Mr. Low’s base
salary was increased by 12%, effective May 1, 2010, resulting in an annual
base salary of $227,136.
Performance-Based
Annual Incentive Bonus
As in
prior years, the Committee established a performance-based annual incentive
bonus plan for fiscal 2010, referred to as the Executive Management Incentive
Program (“EMIP”). The executive officers made eligible for the EMIP
for fiscal 2010 were Ms. Lipson, Ms. Silverberg and Mr. Pemble. For
fiscal 2010, the Committee determined that annual incentive compensation would
be paid entirely in cash, with the amounts contingent on meeting performance
goals set by the Committee.
For
fiscal 2010, the EMIP was tied to both financial and non-financial performance
objectives. The maximum amount payable for achievement of performance goals was
55% of base salary, of which up to 35% of base salary was payable for
achievement of financial goals and up to 20% of base salary was payable for
achievement of non-financial goals. The Committee felt that payment
at these levels would link a significant portion of each eligible executive’s
total cash compensation to Company performance and would position the
executive’s cash compensation generally within a perceived range for comparable
positions at similar size companies when superior performance is
achieved. In addition, the EMIP contemplated that the Committee could
grant a discretionary bonus of up to 50% of base salary for extraordinary
efforts or achievements during the fiscal year or if the Committee determined
that the objective performance goals were not achieved because of events beyond
the control of the executives but that the executives nevertheless deserved
bonus compensation.
The
financial performance objectives utilized in the 2010 EMIP were revenue growth
and operating income growth, which were weighted equally. Because Ms.
Lipson’s and Mr. Pemble’s primary responsibilities were for the Company as a
whole, their EMIP incentives for financial performance were based on the
financial performance of the Company as a whole. Because Ms.
Silverberg’s primary responsibilities were for the Medical Products division,
her EMIP incentives for financial performance were based 50% on the performance
of the Medical Products division and 50% on the performance of the Company as a
whole. The Committee established a target growth range for each of
the financial performance objectives, as follows:
-7-
Performance
Measure
|
Target
Range
|
Revenue Growth
|
|
Company-wide
|
14-17%
|
Medical
Products division
|
13-15%
|
Operating Income Growth
|
|
Company-wide
|
10-14%
|
Medical
Products division
|
13-15%
|
For each
of the above two financial performance measures, the executive could earn 15% of
base salary if performance was within the target range and 17.5% of base salary
if performance was above the target range. No amount would be payable
with respect to a performance measure if performance for that measure was below
the target range. Performance under each financial performance
measure was evaluated independent of performance under the other measure, and
with respect to Ms. Silverberg, Company and division performance were each
evaluated separately. Thus, performance at target level on each
financial performance measure would result in an award of 30% of base salary,
while above-target performance on each financial performance measure would
result in an award of 35% of base salary.
The
non-financial objectives, which were individualized for each executive, included
goals relating to completion of specific projects, product development, customer
satisfaction, marketing, improving administrative processes, employee
development, and implementation of the Company’s strategic plan. An
executive could earn up to 20% of base salary based on achievement of his or her
non-financial objectives. These objectives were stated on a
qualitative rather than quantitative basis. The extent of achievement of such
objectives was determined by the Committee in its discretion after consideration
of each executive’s self-assessment of the extent of achievement of each
objective and the evaluations of such assessment by and recommendations of the
President and Chief Executive Officer.
After the
conclusion of the fiscal year, the Committee determined that Company operating
income growth had exceeded the target level, but that neither Company revenue
growth nor the Medical Products division targets had been
achieved. In assessing achievement of the financial metrics, the
Committee excluded from its calculations, as not reflective of performance
during the year, the one-time tax benefit received by the Company during fiscal
2010 in the amount of $5 million. In addition, the Committee
determined the extent to which each executive had achieved his or her
non-financial goals. The Committee did not pay any amount under the
discretionary provision of the EMIP. As a result of the Committee’s
determinations, each executive received an EMIP payment as follows:
Name
|
%
of Base Salary for Financial Objectives
|
%
of Base Salary for Non-Financial Objectives
|
Total
% of Base Salary Paid under EMIP
|
Amount
Paid under EMIP
($)
|
Roberta Lipson
|
17.50
|
18
|
35.50
|
114,982(1)
|
Elyse Beth Silverberg
|
8.75
|
14
|
22.75
|
66,287(1)
|
Lawrence Pemble
|
17.50
|
18
|
35.50
|
95,850
|
(1)
|
EMIP
payments for Ms. Lipson and Ms. Silverberg were established in RMB and
converted to USD using an exchange rate of 6.8263 RMB to $1.00, which was
the exchange rate on the last day of the fiscal year ended March 31,
2010.
|
Mr. Low’s
bonus was determined by the Chief Financial Officer on a discretionary basis and
approved by the President and Chief Executive Officer, primarily based on an
assessment of Mr. Low’s success in achieving qualitative performance goals
set by the Chief Financial Officer. These goals generally related to
improvements in financial reporting processes and global tax
structure. These goals were chosen because they most closely reflect
Mr. Low’s area of responsibility within the
Company. Mr. Low could earn up to 35% of base salary for
superior performance on all goals. Based on his performance, he was
awarded a bonus of $50,700, equal to 25% of base salary.
Long-Term
Equity Incentive Compensation
The
Committee has the authority to make grants of equity to executive officers and
other employees under our 2007 Stock Incentive Plan. Grants of equity
compensation are designed to attract and retain key managerial and professional
talent, and align the interests of the executive officers with those of our
shareholders by providing each executive officer with a significant incentive to
manage the Company from the perspective of an owner with an equity stake in the
business.
-8-
In fiscal
year 2010, our equity compensation program consisted of grants of stock options
(which were made in June 2009) and shares of restricted stock (which were made
in September 2009). The Committee’s decision as to the allocation
between the two types of awards was made in light of the number of shares
available under the 2007 Stock Incentive Plan and the fact that prior year
allocations between stock options and restricted stock had resulted in our
executives currently holding more stock options than restricted stock. The stock
options were granted at fair market value on the date of grant and have a
ten-year term. The stock options will vest in installments over a
three-year period and the restricted stock will vest in installments over a
four-year period, in each case subject to continued employment, thus
incentivizing the executive officer to remain employed by us during the vesting
period. The awards are subject to accelerated vesting in certain
events, as described under “Grants of Plan-Based Awards in Fiscal
2010”.
The
Committee set the size of the grants at a level that was intended to create a
meaningful opportunity for stock ownership and participation in the increases in
our equity value, based upon the individual’s current position, the individual’s
personal performance in recent periods, and his or her potential for future
responsibility and promotion over the term of the particular
grant. The size of the grants was also determined with reference to
equity-based awards made to executive officers by perceived comparable
companies, to the extent reasonably determinable. The Committee also
considered that for fiscal 2009 as compared to fiscal 2008, revenue for both of
the Company’s divisions and profitability on a consolidated basis showed
significant improvement, and that during fiscal 2009 the Company had made
significant progress in the achievement of strategic objectives.
Based on
these factors, the Committee made the following grants of restricted stock and
stock options to our executive officers during fiscal 2010:
Name
|
#
Shares of Restricted Stock Granted
|
#
Stock Options Granted
|
Roberta Lipson
|
25,000
|
5,000
|
Elyse Beth Silverberg
|
20,000
|
5,000
|
Lawrence Pemble
|
20,000
|
5,000
|
Robert C. Low
|
5,000
|
—
|
Perquisites
and Other Personal Benefits
We
provide certain executive officers with perquisites and other personal benefits
that the Committee believes are reasonable and consistent with its overall
compensation program to better enable us to attract and retain superior
employees for key positions. The Committee periodically reviews the
levels of perquisites and other personal benefits provided to executive
officers.
As
described below, certain of our executive officers have employment agreements
that expressly entitle them to perquisites and other personal
benefits. In particular, each of Ms. Lipson and Mr. Pemble receives
an annual tuition allowance, each of Ms. Lipson and Ms. Silverberg receives a
monthly housing allowance in connection with their residence in China, and Mr.
Pemble receives a monthly allowance relating to remote office
expenses. These executives are also entitled to the use of a Company
car or reimbursement for business use of a personal car, and to reimbursement
for certain travel expenses.
Employment
Agreements
Ms.
Lipson, Ms. Silverberg and Mr. Pemble have employment agreements which were
entered into on October 31, 2006 and amended in December 2008. The
agreements were intended to ensure that the Company would be able to maintain a
continuous, stable and competent executive team. The Committee
believes that the future success of the Company will depend to a significant
degree on the skills and competence of these executive officers. Each
employment agreement has a term ending on December 31, 2013. The
employment agreements provide for base salaries which are to be reviewed
annually. Ms. Lipson’s and Ms. Silverberg’s salaries are denominated
in Chinese Renminbi (“RMB”). Their salaries were converted to RMB in
2008 in response to the decline in the value of the U.S. dollar relative to
Chinese RMB and in consideration of the fact that because they
are living in China, most of their expenses are in Chinese currency. The employment agreements
provide for the payment of annual bonus compensation to the executive officer
based on the success of business operations and the pre-tax profits of the
Company as well as upon the performance of the executive officer, which bonus
has been implemented pursuant to the Executive Management Incentive
Program. In addition, the employment agreements provide that the
Company may grant stock options and/or other long-term equity incentive
compensation to
-9-
the
executive officer, but does not obligate the Company to provide any specified
amount or value of equity compensation. The employment agreements
further provide for the payment of annual allowances of up to $90,000 per year
for the tuition for minor children of Ms. Lipson and Mr. Pemble, of $5,000 per
month for housing expenses of Ms. Lipson and Ms. Silverberg in China, and of
$5,000 per month for certain remote office expenses of Mr.
Pemble. The employment agreements also entitle the executives to the
use of a Company car or an allowance to reimburse the executive for costs
associated with the business use of a personal automobile. During the
years the executives are based in China, they are also entitled to reimbursement
for round-trip economy class airfare from China to the executive’s home in the
United States for the executive and his or her spouse and children.
Mr. Low
has a three-year employment agreement with the Company, entered into November
11, 2008, pursuant to which he serves as Vice President, Finance, and Chief
Accounting Officer, reporting to the Chief Financial Officer. Mr. Low
was subsequently given the additional position of Controller. The
employment agreement provides for an annual base salary of $195,000 and, in the
Company’s discretion, eligibility to participate in an annual bonus program
providing for a potential bonus ranging from 10% to 35% of base salary based
upon combined individual, departmental and Company performance. The
employment agreement also provided for a one-time award to Mr. Low of
non-qualified options to purchase 6,000 shares of the Company’s Common Stock,
expiring ten years from the date of the employment agreement, vesting ratably on
each of the first three anniversaries of the date of the employment agreement,
subject to Mr. Low’s continued employment through the vesting date.
For a
description of the provisions of the employment agreements relating to
termination of employment, see the section titled “Potential Payments Upon
Termination or Change of Control.”
Deductibility
of Executive Compensation
Section 162(m)
of the Internal Revenue Code disallows a tax deduction to publicly held
companies for compensation paid to certain of their executive officers, to the
extent that such compensation exceeds $1 million per covered officer in any
fiscal year. The limitation applies only to compensation that is not
considered to be performance-based. Non-performance-based
compensation paid to the executive officers for the fiscal year ended
March 31, 2010 did not exceed the $1 million limit for any executive
officer. The Company’s stock incentive plans have been structured so
that awards under these plans may, but need not, qualify as performance-based
compensation for purposes of Section 162(m), depending on the terms of the
award. To date, the stock options granted to the executive officers
qualified as performance-based, but restricted stock awards and awards under the
EMIP have not qualified.
Risk
Assessment of Executive Officer Compensation Plans
The
Company’s EMIP, which provides annual performance-based incentive compensation
to our three most senior executive officers, contains a number of features that
discourage our executives from taking unnecessary and excessive risk, including
the following:
·
|
Financial
performance targets, although recommended by management based on the
Company’s overall business plan and budget, are determined by the
Compensation Committee. Similarly, non-financial performance
goals, though recommended by management, are subject to approval by the
Committee.
|
·
|
The
financial performance objectives for fiscal 2010 were equally weighted
between revenue growth and operating income growth, thereby providing
balanced incentives.
|
·
|
The
financial performance measures applicable for the President and Chief
Executive Officer and the Chief Financial Officer were 100% based on
Company-wide performance, and the measures applicable for the Executive
Vice President in charge of the Medical Products division was 50% based on
Company-wide performance, thereby encouraging the entire management team
to make decisions focused on the best long-term interests of the Company
as a whole.
|
·
|
There
is a limit on the amount which can be paid to any executive under the
plan, regardless of the amount by which performance exceeds target
levels.
|
·
|
Although
the EMIP for fiscal 2010 did not expressly provide the Compensation
Committee with discretion to reduce the amount of annual incentive payable
below the amount otherwise earned under the plan formula, it did provide
that determination of the extent to which the performance goals were
satisfied was in the judgment
|
-10-
of the
Committee. The Committee used its judgment to exclude the Company’s
one-time tax benefit from the calculation. The EMIP adopted for
fiscal 2011 expressly provides the Committee with discretion to reduce amounts
payable under the plan.
While the
EMIP rewards achievement of short-term goals, the Company’s grants of equity
awards encourage long-term value creation. The equity awards granted in fiscal
2010 provided for vesting in equal installments over a three-year period from
the date of grant in the case of stock options, and over a four-year period from
the date of grant in the case of restricted stock.
Compensation
Committee Report
The
Compensation Committee has reviewed and discussed the above Compensation
Discussion and Analysis with the Company’s management. Based on the
review and discussions, the Committee recommended to the Company’s Board of
Directors that the Compensation Discussion and Analysis be included in this
report.
RESPECTFULLY
SUBMITTED:
THE
COMPENSATION COMMITTEE
Julius Y.
Oestreicher (Chair)
Carol R.
Kaufman
Kenneth
A. Nilsson
Compensation
Committee Interlocks and Insider Participation
The
members of the Company’s Compensation Committee are Mr. Oestreicher (Chair), Ms.
Kaufman and Mr. Nilsson. No member of the Compensation Committee has
a relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
-11-
Summary
Compensation Table
Name
and
Principal
Position
|
Year(1)
|
Salary(2)
($)
|
Bonus
($)
|
Stock
Awards(3)
($)
|
Option
Awards(4)
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
All
Other
Compensation
($)
|
Total
($)
|
Roberta
Lipson
President
and Chief
Executive
Officer
|
2010
2009
2008
|
333,498
324,558
266,310
|
—
32,344(7)
53,262
|
331,500
189,900
267,875
|
42,200
679,425
811,650
|
114,982(5)
—
93,209
|
171,932(6)
128,456
151,821
|
994,112
1,354,683
1,644,127
|
Elyse
Beth Silverberg
Executive
Vice President
and
Secretary
|
2010
2009
2008
|
300,148
292,102
239,679
|
—
43,664(7)
71,904
|
265,200
94,950
188,370
|
42,200
569,025
740,250
|
66,287(5)
50,942(9)
33,555
|
75,974(8)
71,265
75,381
|
749,809
1,121,948
1,349,139
|
Lawrence
Pemble
Chief
Financial Officer
and
Executive Vice President
|
2010
2009
2008
|
278,100
270,000
236,250
|
—
27,000
47,250
|
265,200
126,600
188,370
|
42,200
569,025
740,250
|
95,850
—
82,688
|
80,817(10)
74,368
68,170
|
762,167
1,066,993
1,362,978
|
Robert C.
Low(11)
Vice
President, Finance and Controller
|
2010
2009
|
211,900
99,000
|
50,700
9,750
|
66,300
—
|
—
46,080
|
—
—
|
1,521(12)
2,670
|
330,421
157,500
|
(1)
|
Fiscal
year ended March 31.
|
(2)
|
Effective
January 1, 2008, Ms. Lipson’s and Ms. Silverberg’s salaries are
denominated in RMB and have been converted to USD using an average
exchange rate, as follows: for fiscal 2010, 6.83 RMB to $1.00; for fiscal
2009, 6.81 RMB to $1.00; and for the last quarter of fiscal 2008, using an
average exchange rate for the quarter of 7.02 RMB to
$1.00.
|
(3)
|
The
amounts in the “Stock Awards” column reflect the grant date fair value of
restricted stock awards, computed in accordance with Financial Accounting
Standards Board Accounting Standards Codification 718 (excluding the
estimated effect of any forfeitures), granted in fiscal years ended
March 31, 2010, 2009, and 2008. This is the total amount
the Company would expect to expense in its financial statements over the
vesting period for the award. The grant date fair value of each
restricted stock award is the fair market value of the shares on the date
of the award. These awards were granted on September 14, 2009,
September 15, 2008, September 11, 2007, and June 29, 2007, on which dates
the fair market value per share was $13.26, $10.55, $13.55, and $14.75,
respectively. Each award of restricted shares entitles the
holder to payment of cash dividends at the same time as dividends are paid
to other shareholders. Amounts reflected in this column may not
correspond to the actual value that will be received by the executive from
these awards.
|
(4)
|
The
amounts in the “Option Awards” column reflect the grant date fair value of
stock options, computed in accordance with Financial Accounting Standards
Board Accounting Standards Codification 718 (excluding the estimated
effect of any forfeitures), granted in fiscal years ended March 31,
2010, 2009, and 2008. This is the total amount the Company
would expect to expense in its financial statements over the vesting
period for the award. Assumptions made in calculating the grant
date fair value for these awards are included in Note 1 to the Company’s
financial statements for the fiscal year ended March 31, 2010.
Amounts reflected in this column may not correspond to the actual value
that will be received by the executive from these awards. These
awards were granted on June 30, 2009, September 29, 2008, September 15,
2008, June 26, 2008, November 27, 2007, and September 11, 2007, and had a
grant date per share fair value of the option of $8.44, $7.68, $7.36,
$10.57, $13.86, and $9.52, respectively. The “Option Awards”
amounts for 2009 for each of Ms. Lipson, Ms. Silverberg, and Mr. Pemble
includes $237,825 with respect to EMIP awards for fiscal 2009 based on the
target level of performance as of the date of grant (June 26, 2008).
The award value for each of these executives based on maximum level of
performance was $317,100. The grant date fair value of these awards
at the level actually vested was zero for Ms. Lipson and Mr. Pemble and
was $158,550 for Ms. Silverberg. The “Option Awards” amounts for
2008 for each of Ms. Lipson, Ms. Silverberg, and Mr. Pemble includes
$311,850 with respect to EMIP awards for fiscal 2008 based on the target
level of performance as of the service
|
-12-
inception
date (November 27, 2007). The award value for each of these executives
based on maximum level of performance was $415,800. The grant date fair
value of these awards at the level actually vested was $415,800 for Ms. Lipson
and Mr. Pemble and $166,320 for Ms. Silverberg.
(5)
|
Non-equity
incentive for Ms. Lipson and Ms. Silverberg was established in RMB and
converted to USD using an exchange rate of 6.8263 RMB to $1.00, which was
the exchange rate on the last day of the fiscal
year.
|
(6)
|
Consists
of $87,978 for international tuition expenses for Ms. Lipson’s school aged
children, housing allowance of $64,756 for Ms. Lipson’s housing in China,
$10,000 reimbursement for home leave travel, $7,354 in matching
contributions under the Company’s 401(k) plan and $1,844 for automobile
and related expense.
|
(7)
|
Discretionary
bonus for Ms. Lipson and Ms. Silverberg was established in RMB and
converted to USD using an exchange rate of 6.8359 RMB to $1.00, which was
the exchange rate on the last day of the fiscal
year.
|
(8)
|
Consists
of housing allowance of $64,756 for Ms. Silverberg’s housing in China,
$3,864 reimbursement for home leave travel (reimbursed in RMB and
converted to USD using an exchange rate of 6.8263), and $7,354
in matching contributions under the Company’s 401(k)
plan.
|
(9)
|
Non-equity
incentive was established in RMB and converted to USD using an exchange
rate of 6.8359 RMB to $1.00, which was the exchange rate on the last day
of the fiscal year.
|
(10)
|
Consists
of $11,625 for tuition expenses for Mr. Pemble’s children, maintenance of
remote office facility expenses of $60,000, $1,794 for life insurance and
$7,398 in matching contributions under the Company’s 401(k)
plan.
|
(11)
|
Mr.
Low’s employment began in September
2008.
|
(12)
|
Consists
of matching contributions under the Company’s 401(k)
plan.
|
Grants
of Plan-Based Awards in Fiscal 2010
The
following table provides information about equity awards granted to the named
executives in the fiscal year ended March 31, 2010.
Name
|
Estimated
Future Payouts
Under
Non-Equity Incentive
Plan
Awards(2)
|
All
Other
Stock
Awards:
Number
of Shares of Stock or Units(3) (#)
|
All
Other
Option
Awards: Number of Securities Underlying Options(4)
(#)
|
Exercise
or
Base Price
of
Option Awards
($/Sh)
|
Grant
Date
Fair
Value(5)
($)
|
|||
Grant
Date(1)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|||||
Roberta
Lipson
|
6/30/09
|
5,000
|
12.37
|
42,200
|
||||
9/14/09
|
25,000
|
331,500
|
||||||
11/12/09
|
32,389
|
129,558
|
178,142
|
|||||
Elyse
Beth Silverberg
|
6/30/09
|
5,000
|
12.37
|
42,200
|
||||
9/14/09
|
20,000
|
265,200
|
||||||
11/12/09
|
29,150
|
116,602
|
160,328
|
|||||
Lawrence
Pemble
|
6/30/09
|
5,000
|
12.37
|
42,200
|
||||
9/14/09
|
20,000
|
265,200
|
||||||
11/12/09
|
27,000
|
108,000
|
148,500
|
|||||
Robert
C. Low
|
9/14/09
|
5,000
|
66,300
|
(1)
|
All
equity awards shown in this table were granted under the Company’s 2007
Stock Incentive Plan.
|
(2)
|
Amounts
shown in “Estimated Future Payouts Under Non-Equity Incentive Plan Awards”
column reflect performance awards for fiscal 2010 under the Executive
Management Incentive Program (“EMIP”). For fiscal 2010, the
entire EMIP award was payable in cash. Ms. Lipson’s and Ms.
Silverberg’s amounts were established in RMB and have
|
-13-
been
converted to USD using an exchange rate of 6.8263 RMB to $1.00, which was the
exchange rate on the last day of the fiscal year. See the
“Compensation Discussion and Analysis” for information with respect to the
performance goals under the EMIP for fiscal 2010. Amounts in the
“Threshold” column are the amounts that would have been paid if none of the
financial objectives was satisfied but some of the executive’s non-financial
objectives were satisfied.
(3)
|
This
column shows the number of shares of restricted stock granted to each
named executive in fiscal 2010. The restricted stock grant
dated September 14, 2009 vests as to one-fourth of the shares on each of
the first four anniversaries of the date of grant, with full vesting in
the event of the executive’s death, disability, termination by the Company
without cause, sale of the subsidiary or division employing the executive,
or a change of control of the Company. The employment
agreements of Ms. Lipson, Ms. Silverberg and Mr. Pemble provide that their
restricted stock awards vest upon a termination of their employment by the
Company without cause or by the executive for good
reason.
|
(4)
|
This
column shows the number of stock options granted to each named executive
in fiscal 2010. The stock options vest as to one-third of the
shares on each of the first three anniversaries of the date of grant, with
full vesting in the event of retirement, death, disability, sale of the
subsidiary or division employing the executive, or a change of control of
the Company. The employment agreements of Ms. Lipson, Ms.
Silverberg and Mr. Pemble provide that their stock options vest upon a
termination of their employment by the Company without cause or by the
executive for good reason.
|
(5)
|
This
column shows the full grant date fair value of each equity award, computed
in accordance with Financial Accounting Standards Board Accounting
Standards Codification 718 (excluding the estimated effect of any
forfeitures), granted in the fiscal year ended March 31, 2010, which
is the total amount the Company would expect to expense in its financial
statements over the vesting period for the award. The grant
date fair value of each restricted stock award is the fair market value of
the shares on the date of the award. Assumptions made in
calculating the grant date fair value for stock option awards are included
in Note 1 to the Company’s financial statements for the fiscal year ended
March 31, 2010. The grant date fair value is $8.44 per
share for the stock option awards and $13.26 per share for the restricted
stock awards granted in fiscal
2010.
|
-14-
Outstanding
Equity Awards at 2010 Fiscal Year-End
The
following table provides information on the holdings of stock options and
unvested restricted stock by the named executives as of March 31,
2010.
Option
Awards
|
Stock
Awards
|
|||||||
Name
|
Grant
Date
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|
Roberta
Lipson
|
09/11/2000(1)
|
145,200
|
-
|
1.46
|
09/11/2010
|
-
|
-
|
|
07/08/2005(3)
|
16,500
|
-
|
2.98
|
07/08/2015
|
-
|
-
|
||
02/07/2006(1)
|
40,500
|
-
|
4.36
|
02/07/2016
|
-
|
-
|
||
09/11/2007(4)
|
26,250
|
26,250
|
13.55
|
09/11/2017
|
-
|
-
|
||
09/11/2007(4)
|
-
|
-
|
-
|
-
|
8,250
|
97,433
|
||
11/27/2007(5)
|
10,000
|
20,000
|
19.81
|
06/17/2018
|
-
|
-
|
||
09/15/2008(6)
|
20,000
|
40,000
|
10.55
|
09/15/2018
|
-
|
-
|
||
09/15/2008(6)
|
-
|
-
|
-
|
-
|
12,000
|
141,720
|
||
06/30/2009(6)
|
-
|
5,000
|
12.37
|
06/30/2019
|
-
|
-
|
||
09/14/2009(4)
|
-
|
-
|
-
|
-
|
25,000
|
295,250
|
||
Total
|
258,450
|
91,250
|
-
|
-
|
45,250
|
534,403
|
||
Elyse
Beth Silverberg
|
09/11/2000(1)
|
145,200
|
-
|
1.46
|
09/11/2010
|
-
|
-
|
|
04/26/2004(2)
|
37,500
|
-
|
8.33
|
04/26/2014
|
-
|
-
|
||
07/08/2005(3)
|
16,500
|
-
|
2.98
|
07/08/2015
|
-
|
-
|
||
02/07/2006(1)
|
40,500
|
-
|
4.36
|
02/07/2016
|
-
|
-
|
||
09/11/2007(4)
|
22,500
|
22,500
|
13.55
|
09/11/2017
|
-
|
-
|
||
09/11/2007(4)
|
-
|
-
|
-
|
-
|
4,500
|
53,145
|
||
11/27/2007(5)
|
4,000
|
8,000
|
19.81
|
06/17/2018
|
-
|
-
|
||
06/26/2008(7)
|
-
|
15,000
|
15.32
|
06/26/2018
|
-
|
-
|
||
09/15/2008(6)
|
15,000
|
30,000
|
10.55
|
09/15/2018
|
-
|
-
|
||
09/15/2008(6)
|
-
|
-
|
-
|
-
|
6,000
|
70,860
|
||
06/30/2009(6)
|
-
|
5,000
|
12.37
|
06/30/2019
|
-
|
-
|
||
09/14/2009(4)
|
-
|
-
|
-
|
-
|
20,000
|
236,200
|
||
Total
|
281,200
|
80,500
|
-
|
-
|
30,500
|
360,205
|
||
Lawrence
Pemble
|
02/07/2006(1)
|
84,000
|
-
|
4.36
|
02/07/2016
|
-
|
-
|
|
09/11/2007(4)
|
22,500
|
22,500
|
13.55
|
09/11/2017
|
-
|
-
|
||
09/11/2007(4)
|
-
|
-
|
-
|
-
|
4,500
|
53,145
|
||
11/27/2007(5)
|
10,000
|
20,000
|
19.81
|
06/17/2018
|
-
|
-
|
||
09/15/2008(6)
|
15,000
|
30,000
|
10.55
|
09/15/2018
|
-
|
-
|
||
09/15/2008(6)
|
-
|
-
|
-
|
-
|
8,000
|
94,480
|
||
06/30/2009(6)
|
-
|
5,000
|
12.37
|
06/30/2019
|
-
|
-
|
||
09/14/2009(4)
|
-
|
-
|
-
|
-
|
20,000
|
236,200
|
||
Total
|
131,500
|
77,500
|
-
|
-
|
32,500
|
383,825
|
||
Robert
C. Low
|
09/29/2008(6)
|
2,000
|
4,000
|
10.99
|
09/29/2018
|
-
|
-
|
|
09/14/2009(4)
|
-
|
-
|
-
|
-
|
5,000
|
59,050
|
||
Total
|
2,000
|
4,000
|
-
|
-
|
5,000
|
59,050
|
(1)
|
All
of these options vested on grant
date.
|
(2)
|
30,000
options vested on the date of grant and the remaining 7,500 options vested
on March 15, 2005.
|
(3)
|
One-third
of these options vested on the date of grant and the remaining options
vested on February 7, 2006.
|
(4)
|
These
options and shares vest one-fourth on each of the first four anniversaries
of the date of grant.
|
-15-
(5)
|
These
options were granted as part of the fiscal 2008 EMIP and vest one-third
each on June 17, 2009, 2010 and
2011.
|
(6)
|
These
options and shares vest one-third on each of the first three anniversaries
of the date of grant.
|
(7)
|
These
options were granted as part of the fiscal 2009 EMIP and vest one-third
each on July 1, 2010, 2011 and
2012.
|
Option
Exercises and Stock Vested in Fiscal 2010
Option
Awards
|
Stock
Awards
|
|||
Name
|
Number of Shares
Acquired on Exercise
(#)
|
Value Realized
on
Exercise
($)
|
Number of Shares
Acquired on Vesting
(#)
|
Value Realized on
Vesting
($)
|
Roberta
Lipson
|
—
|
—
|
12,625
|
166,790
|
Elyse
Beth Silverberg
|
—
|
—
|
8,250
|
108,540
|
Lawrence
Pemble
|
—
|
—
|
9,250
|
121,710
|
Robert
C. Low
|
—
|
—
|
—
|
—
|
Potential
Payments Upon Termination or Change of Control
The
Company has entered into employment agreements with Ms. Lipson, Ms. Silverberg,
Mr. Pemble, and Mr. Low. The agreements with Ms. Lipson, Ms.
Silverberg and Mr. Pemble provide that in the event of the executive’s
termination by the Company for “cause” or the executive’s voluntary resignation
without “good reason,” the executive would only be entitled to earned but unpaid
salary, earned but unpaid bonus for a previously completed fiscal year, payment
of or reimbursement for any unpaid housing allowance or unreimbursed business
expenses, air fare, tuition and automobile expenses, payment for unused vacation
and any amounts payable under Company benefit plans or
policies. Under the agreements, “cause” means willful misconduct or
gross negligence, dishonesty or misappropriation of assets, certain absences
from work, unauthorized disclosure of confidential or proprietary information
under certain circumstances, a conviction for certain crimes or a violation of
certain laws, or the failure to attempt to perform the executive’s duties, most
of which events are subject to opportunities to cure.
The
agreements also provide that in the event of the executive’s termination by the
Company without “cause” or by the executive for “good reason,” the executive
would be entitled to all of the above amounts and benefits plus (i) a lump sum
payment equal to three times the sum of the ensuing year’s salary plus the prior
year’s bonus plus the annual housing allowance; (ii) a pro rated portion of the
current year’s bonus (provided, however, that in the event of the executive’s
termination following a change of control event, the pro-rated bonus is instead
based on the greater of the executive’s average bonus for the two prior years or
30% of salary); (iii) continuation of specified medical benefits for life
(unless the executive reaches the age of 65, or becomes eligible for Medicare or
corresponding benefits with a new employer); (iv) an annuity policy which will
provide the executive with payments of $500 per month from the date the
executive reaches the age of 65 until his or her death that the executive can
use to purchase supplemental health insurance; (v) vesting of all equity awards;
and (vi) continuation of any tuition reimbursements for the remainder of the
calendar year in which termination occurred plus three additional
years. The executive is also entitled to a tax gross-up to the extent
amounts payable to the executive in connection with a change of control event
are subject to excise tax. Under the employment agreements, “good
reason” means any reduction in the executive’s authority, duties or
responsibilities; an adverse change in the executive’s position, title or
reporting responsibility (except for changes solely by virtue of the Company
being acquired by another entity); the assignment of duties to the executive
that are inconsistent with his or her position and status; a reduction in the
executive’s annual salary or bonus opportunity; the failure to cure a material
breach of the executive’s employment agreement by the Company; or relocation of
the executive without his or her consent, all but the last of which events are
subject to an opportunity to cure.
The
agreements also provide that the executive’s employment terminates automatically
upon the executive’s death and may be terminated by the Company in the event of
the executive becoming disabled. For purposes of the agreements,
“disability” is defined as physical or mental incapacity of a nature which
prevents the executive, in the good faith
-16-
judgment
of the Company’s Board of Directors, from performing his or her duties under the
agreement for a period of 180 consecutive days or 270 days during any
year. In the event of death or disability, the executive would only
be entitled to earned but unpaid salary, earned but unpaid bonus for a
previously completed fiscal year, reimbursement for business expenses, payment
for unused vacation, any amounts payable under Company benefit plans or
policies, and a pro rata portion of the current year’s bonus (based on the
greater of the executive’s average bonus for the two prior years or 30% of
salary). In addition, the agreements require the Company to provide
each executive with a life insurance policy having a benefit payable upon death
equal to three times the executive’s salary.
The
agreements also provide that the executive’s employment would terminate
immediately and automatically upon the expiration of the term of the agreement
(December 31, 2013). The executive would be entitled to earned but
unpaid salary, earned but unpaid bonus for a previously completed fiscal year,
reimbursement for business expenses, payment for unused vacation, any amounts
payable under Company benefit plans or policies, and a pro rata portion of the
current year’s bonus; provided, however, that if the executive’s employment was
terminated at the expiration of the term and the Company had not previously
offered to renew the employment agreement on commercially reasonable terms, then
the Company would also pay or provide (i) group life, disability, sickness,
hospitalization and accident insurance benefits equivalent to those to which the
executive would have been entitled if he or she continued working for the
Company for an additional twelve month period, and (ii) the annual salary to the
same extent to which the executive would have been entitled if he or she
continued working for the Company for an additional twelve month
period.
The
employment agreements have non-competition, confidentiality and non-solicitation
provisions. The non-competition provision states that the executive
officer will not compete with the Company through the end of one year after
cessation of employment, with certain exceptions. The confidentiality
provision states that the executive officer will maintain the confidential
information of the Company in confidence during and after employment, with
certain exceptions. The non-solicitation provision states that, for
one year after cessation of employment, the executive officer will not solicit
for employment or hire any person who was employed by the Company during the
term of such person’s employment, with certain exceptions.
Mr. Low’s
employment agreement is for a three-year term. It provides that in
the event his employment is terminated by the Company without “cause” he would
be entitled to earned but unpaid salary and any amounts payable under Company
benefit plans and policies plus continued payment of his base salary for a
period of (i) three months, if such termination occurs prior to November 11,
2009 (the first anniversary of the agreement), or (ii) six months if termination
occurs thereafter. In the event of any other termination of
employment, he would only be entitled to earned but unpaid salary and any
amounts payable under Company benefit plans and policies. For
purposes of Mr. Low’s employment agreement, “cause” means willful misconduct or
gross negligence; dishonesty or misappropriation of assets; certain absences
from work; unauthorized disclosure of confidential or proprietary information
under certain circumstances; conviction of certain crimes or violation of
certain laws; willful or grossly negligent violation of the Company’s policies
and procedures or of reasonable and appropriate directions from senior
management; and unsatisfactory performance not remedied within 30 days of
notice. Mr. Low’s agreement contains non-competition, confidentiality
and non-solicitation provisions.
The
restricted stock awards granted to the executive officers generally become fully
vested upon the executive’s death or disability, upon a change in control of the
Company or a sale of the subsidiary or division employing the executive, or upon
a termination of the executive’s employment by the Company without
“cause.” The stock option awards granted to the executive officers
generally become fully vested upon the executive’s retirement, death or
disability, or upon a change in control of the Company or a sale of the
subsidiary or division employing the executive. In addition, pursuant
to their employment agreements, the equity awards of Ms. Lipson, Ms. Silverberg,
and Mr. Pemble become fully vested upon a termination of the executive’s
employment by the Company without “cause” or by the executive for “good
reason.” The stock option awards generally provide that options
terminate immediately upon a termination for “cause,” 90 days after voluntary
resignation or resignation for “good reason”, six months after termination of
the executive’s employment by the Company without “cause,” two years after
termination due to retirement, death, or disability, and one year after a
termination of employment following a change in control.
The
following table provides an estimate of the potential payments and benefits that
each of the named executives would be entitled to receive upon termination of
employment under various circumstances and upon a change of
control. In each case, the table assumes the executive’s termination
or the change of control occurred on
-17-
March 31,
2010. The table does not include payments the executive would be
entitled to receive in the absence of one of these specified events, such as
from the exercise of previously vested stock options (which amount can be
calculated from the “Outstanding Equity Awards at 2010 Fiscal Year-End”
table). The table also does not include benefits that are provided on
a non-discriminatory basis to salaried employees generally, including amounts
payable under the Company’s 401(k) Plan.
Cash
Severance Payment
($)
|
Continuation
of Medical / Welfare Benefits
($)
|
Accelerated
Vesting of Equity Awards
($)(1)
|
Continued
Tuition Allowance
($)
|
Tax
Gross-up
($)
|
Total
Termination Benefits
($)
|
|
Roberta
Lipson
|
||||||
Ÿ Voluntary
Resignation or Termination
for Cause |
114,982(2)
|
—
|
—
|
—
|
—
|
114,982
|
Ÿ Death or
Disability
|
97,168(3)
|
—
|
584,817
|
—
|
—
|
681,985
|
Ÿ
Retirement
|
114,982(2)
|
—
|
50,403
|
—
|
—
|
165,385
|
Ÿ Termination
Without Cause or for
Good Reason
|
1,728,215
|
286,593(4)
|
584,817
|
337,500(5)
|
—
|
2,937,125
|
Ÿ Change of
Control
|
—
|
—
|
584,817
|
—
|
—
|
584,817
|
Ÿ Sale of
Subsidiary or Division
Employing Executive |
—
|
—
|
584,817
|
—
|
—
|
584,817
|
Ÿ Termination
Without Cause or for
Good Reason after Change of Control |
1,475,532
|
286,593(4)
|
584,817
|
337,500(5)
|
1,069,198
|
3,753,640
|
Ÿ Failure to
Renew
|
477,744
|
16,332
|
—
|
—
|
—
|
494,076
|
Elyse
Beth Silverberg
|
||||||
Ÿ Voluntary
Resignation or Termination
for Cause |
66,287(2)
|
—
|
—
|
—
|
—
|
66,287
|
Ÿ Death or
Disability
|
100,032(3)
|
—
|
398,019
|
—
|
—
|
498,051
|
Ÿ
Retirement
|
66,287(2)
|
—
|
37,803
|
—
|
—
|
104,090
|
Ÿ Termination
Without Cause or for
Good Reason |
1,424,605
|
326,239(4)
|
398,019
|
—
|
2,148,863
|
|
Ÿ Change of
Control
|
—
|
—
|
398,019
|
—
|
—
|
398,019
|
Ÿ Sale of
Subsidiary or Division
Employing Executive |
—
|
—
|
398,019
|
—
|
—
|
398,019
|
Ÿ Termination
Without Cause or for
Good Reason after Change of Control |
1,449,213
|
326,239(4)
|
398,019
|
820,823
|
2,994,294
|
|
Ÿ Failure to
Renew
|
392,773
|
16,332
|
—
|
—
|
—
|
409,105
|
-18-
Cash
Severance Payment
($)
|
Continuation
of Medical / Welfare Benefits
($)
|
Accelerated
Vesting of Equity Awards
($)(1)
|
Continued
Tuition Allowance
($)
|
Tax
Gross-up
($)
|
Total
Termination Benefits
($)
|
|
Lawrence
Pemble
|
||||||
Ÿ Voluntary
Resignation or Termination
for Cause |
95,850(2)
|
—
|
—
|
—
|
—
|
95,850
|
Ÿ Death or
Disability
|
81,000(3)
|
—
|
421,639
|
—
|
—
|
502,639
|
Ÿ
Retirement
|
95,850(2)
|
—
|
37,803
|
—
|
—
|
133,653
|
Ÿ Termination
Without Cause or for
Good Reason |
1,470,600
|
363,497(4)
|
421,639
|
337,500(5)
|
—
|
2,593,236
|
Ÿ Change of
Control
|
—
|
—
|
421,639
|
—
|
—
|
421,639
|
Ÿ Sale of
Subsidiary or Division
Employing Executive |
—
|
—
|
421,639
|
—
|
—
|
421,639
|
Ÿ Termination
Without Cause or for
Good Reason after Change of Control |
1,260,000
|
363,497(4)
|
421,639
|
337,500(5)
|
1,173,174
|
3,555,810
|
Ÿ Failure to
Renew
|
398,250
|
18,957
|
—
|
—
|
—
|
417,207
|
Robert
C. Low
|
||||||
Ÿ Voluntary
Resignation or Termination
for Cause |
—
|
—
|
—
|
—
|
—
|
—
|
Ÿ Death or
Disability
|
—
|
—
|
62,331
|
—
|
—
|
62,331
|
Ÿ
Retirement
|
—
|
—
|
3,281
|
—
|
—
|
3,281
|
Ÿ Termination
Without Cause
|
101,400
|
—
|
59,050
|
—
|
—
|
160,450
|
Ÿ Change of
Control
|
—
|
—
|
62,331
|
—
|
—
|
62,331
|
Ÿ Sale of
Subsidiary or
Division
Employing Executive |
—
|
—
|
59,050
|
—
|
—
|
59,050
|
Ÿ Termination
Without Cause after
Change of Control |
101,400
|
—
|
62,331
|
—
|
—
|
163,731
|
Ÿ Failure to
Renew
|
—
|
—
|
—
|
—
|
—
|
—
|
(1)
|
Reflects
the value of restricted stock and the option spread of stock options whose
vesting is accelerated, in each case based on the closing price of the
Chindex common stock on March 31, 2010 ($11.81 per
share).
|
(2)
|
Reflects
earned but unpaid bonus for fiscal
2010.
|
(3)
|
Amount
paid in lieu of earned but unpaid bonus for fiscal
2010.
|
(4)
|
Calculated
using an assumed life expectancy of 85 years and an annual inflation rate
of 3%.
|
(5)
|
Calculated
using the maximum benefit allowed under employment
agreement. Actual usage has been
lower.
|
-19-
Board
Compensation
Directors
who are also employees of the Company are not separately compensated for their
services as directors.
Cash
Compensation to Board Members. Each director
who is not an employee of the Company is paid for serving on the Board of
Directors. During the fiscal year ended March 31, 2010, the cash
director fees consisted of an annual retainer of $10,000 and an additional
$2,500 for each meeting of the Company’s stockholders attended, $1,000 for each
meeting of the Board of Directors attended (in person or by telephone), and $750
for each meeting of a Board committee attended (in person or by
telephone).
In June
2010, the fee schedule was revised to provide for an annual retainer of $10,000
and an additional $2,500 for each meeting of the Company’s stockholders, the
Board, or a Board committee attended in person; $1,000 for each meeting of the
Board attended by telephone; and $750 for each meeting of a Board committee
attended by telephone. If more than one meeting is held on the same day, meeting
fees will be paid for only a single meeting. At the discretion of the
Governance and Nominating Committee, additional fees may be paid for meetings
that last more than one day.
Equity
Compensation to Board Members. The Company
grants equity awards to its outside directors on an annual
basis. During fiscal 2010, each outside director was granted 9,000
shares of restricted stock for service on the Board and an additional 3,000
shares of restricted stock for service as chair of the Board or of a Board
committee. These shares vest ratably on the six-month and one-year
anniversaries of the date of grant.
Other. Board members
are reimbursed for reasonable expenses in attending meetings of the Board of
Directors and for expenses incurred in connection with their complying with our
corporate governance policies. During fiscal 2010, the Company also
paid for hotel accommodations, group meals, ground transportation, and airfare
for a director’s spouse or partner who accompanied the director to a Board or
shareholder meeting. In June 2010 the Board revised this policy so
that the Company will no longer pay airfare for spouses or partners of
directors. The Company also provides directors’ and officers’
liability insurance for our directors and has entered into indemnity agreements
with them.
Non-management
Directors’ Compensation for Fiscal 2010
The
following table shows the compensation received by each of our non-employee
directors for the fiscal year ended March 31, 2010.
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards(1)(2)
($)
|
Option
Awards
($)
|
Total
($)
|
Holli Harris
|
20,250
|
159,120
|
—
|
179,370
|
Carol R. Kaufman
|
24,750
|
119,340
|
—
|
144,090
|
Kenneth A. Nilsson
|
25,500
|
198,900
|
—
|
224,400
|
Julius Y. Oestreicher
|
25,500
|
159,120
|
—
|
184,620
|
(1)
|
The
amounts in the “Stock Awards” column reflect the grant date fair value of
restricted stock awards, computed in accordance with Financial Accounting
Standards Board Accounting Standards Codification 718 (excluding the
estimated effect of any forfeitures). These awards were granted
on September 14, 2009, on which date the fair market value per share was
$13.26.
|
(2)
|
At
March 31, 2010, the number of unvested shares of restricted stock held by
the non-employee directors was as follows: Ms. Harris, 6,000;
Ms. Kaufman, 4,500; Mr. Nilsson, 7,500; and Mr. Oestreicher,
6,000. At March 31, 2010, the number of vested stock options
held by the non-employee directors was as follows: Ms. Harris,
22,500; Ms. Kaufman, none; Mr. Nilsson, none; and Mr. Oestreicher,
129,720. At March 31, 2010, there were no unvested stock
options held by the non-employee
directors.
|
-20-
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Security
Ownership Table
The
following table sets forth information as to the ownership of shares of the
Company’s Common Stock and Class B Common Stock as of July 13, 2010 with
respect to (i) holders known to the Company to beneficially own more than five
percent (5%) of the outstanding Common Stock or Class B Common Stock, (ii) each
director, (iii) the Company’s named executive officers for fiscal 2010 and (iv)
all directors and executive officers of the Company as a group.
Amount
and Nature
Of
Beneficial
Ownership(2)(3)
|
Percent
of:
|
||||
Name
and Address of
Beneficial
Stockholder(1)
|
Common
Stock(4)
|
Class
B
Common
Stock(4)
|
Common
Stock
|
Class
B
Common
Stock
|
Combined(5)
|
Roberta
Lipson
|
399,505(6)
|
660,000(7)
|
2.8%
|
56.8%
|
20.7%
|
Elyse
Beth Silverberg
|
380,486(8)
|
390,750
|
2.7%
|
33.6%
|
13.0%
|
Lawrence
Pemble
|
207,658(9)
|
111,750
|
1.5%
|
9.6%
|
4.2%
|
Julius
Y. Oestreicher
|
171,720(10)
|
0
|
1.2%
|
0%
|
Less
than 1%
|
Carol
R. Kaufman
|
31,500(11)
|
0
|
Less
than 1%
|
0%
|
Less
than 1%
|
Kenneth
A. Nilsson
|
67,000(12)
|
0
|
Less
than 1%
|
0%
|
Less
than 1%
|
Holli
Harris
|
59,770(13)
|
0
|
Less
than 1%
|
0%
|
Less
than 1%
|
Robert
C. Low
|
9,500(14)
|
0
|
Less
than 1%
|
0%
|
Less
than 1%
|
Prescott
Group Capital Management, LLC
1924 South Utica, Suite 1120
Tulsa, OK 74104
|
734,938(15)
|
0
|
5.3%
|
0%
|
3.5%
|
Essex
Investment Management Company,
LLC
125 High Street, 29th Fl.
Boston, MA 02110
|
696,506(16)
|
0
|
5.1%
|
0%
|
3.4%
|
JPMorgan
Chase & Co.
270 Park Avenue
New York, NY 10017
|
2,653,016(17)
|
0
|
19.3%
|
0%
|
12.8%
|
Fosun
Industrial Co., Ltd.
Level 28, Three Pacific Place
1 Queen’s Road East
Hong Kong, China
|
1,750,295(18)
|
0
|
12.7%
|
0%
|
8.4%
|
BlackRock,
Inc.
40 East 52nd Street
New York, NY 10022
|
722,686(19)
|
0
|
5.3%
|
0%
|
3.5%
|
All
Executive Officers and Directors
as a Group (8 persons)
|
1,327,139(20)
|
1,162,500
|
9.0%
|
100.0%
|
38.4%
|
_______________
(1)
|
Unless
otherwise indicated, the business address of each person named in the
table is c/o Chindex International, Inc., 4340 East West Highway, Suite
1100, Bethesda, Maryland 20814.
|
(2)
|
Except
as otherwise indicated, each of the parties listed has sole voting and
investment power with respect to all shares indicated
below. The indicated party has voting but not investment power
with respect to shares identified as unvested shares of restricted
stock.
|
-21-
(3)
|
Beneficial
ownership is calculated in accordance with Regulation S-K as promulgated
by the SEC.
|
(4)
|
The
Common Stock is entitled to one vote per share, and the Class B Common
Stock is entitled to six votes per
share.
|
(5)
|
Indicates
percentage voting power represented by beneficial ownership when the
Common Stock and Class B Common Stock vote together, based on a total of
13,765,611 shares of Common Stock and 1,162,500 shares of Class B Common
Stock outstanding as of July 13,
2010.
|
(6)
|
Includes
45,250 unvested shares of restricted stock, 283,239 shares underlying
options that are currently exercisable or will become exercisable within
60 days and 10,800 shares held by the Benjamin Lipson Plafker Trust, of
which Ms. Lipson is a trustee.
|
(7)
|
Includes
30,000 shares held by each of the Ariel Benjamin Lee Trust, Daniel Lipson
Plafker Trust and Jonathan Lipson Plafker Trust, of each of which
Ms. Lipson is a trustee.
|
(8)
|
Includes
30,500 unvested shares of restricted stock and 303,115 shares underlying
options that are currently exercisable or will become exercisable within
60 days.
|
(9)
|
Includes
32,500 unvested shares of restricted stock and 154,414 shares underlying
options that are currently exercisable or will become exercisable within
60 days.
|
(10)
|
Includes
6,000 unvested shares of restricted stock and 129,720 shares underlying
options that are currently
exercisable.
|
(11)
|
Includes
4,500 unvested shares of restricted
stock.
|
(12)
|
Includes
2,000 shares owned by Mr. Nilsson’s wife, as to which shares Mr. Nilsson
disclaims beneficial ownership, and 7,500 unvested shares of restricted
stock.
|
(13)
|
Includes
6,000 unvested shares of restricted stock and 22,500 shares underlying
options that are currently
exercisable.
|
(14)
|
Includes
5,000 unvested shares of restricted stock and 2,000 shares underlying
options that are currently
exercisable.
|
(15)
|
The
amount and nature of beneficial ownership of the shares held by Prescott
Group Capital Management, LLC (“Prescott Group Capital”) is based solely
on a Schedule 13G filed with the SEC on February 12,
2010. The Schedule 13G indicates that the shares were purchased
by Prescott Group Aggressive Small Cap, L.P. and Prescott Group Aggressive
Small Cap II, L.P. (together, the “Small Cap Funds”) through the account
of Prescott Group Aggressive Small Cap Master Fund, G.P. (the “Master
Fund”), of which the Small Cap Funds are general
partners. Prescott Group Capital serves as the general partner
of the Small Cap Funds and may direct the Small Cap Funds, as general
partners of the Master Fund, to direct the votes and disposition of the
shares held by the Master Fund. As the managing member of
Prescott Group Capital, Mr. Phil Frohlich may direct the votes and
disposition of the shares held by the Master Fund. We have no
independent knowledge of the accuracy or completeness of the information
set forth in the Schedule 13G, but have no reason to believe that such
information is not complete or
accurate.
|
(16)
|
The
amount and nature of beneficial ownership of the shares held by Essex
Investment Management Company, LLC is based solely on a Schedule 13G filed
with the SEC on February 13, 2009. We have no independent
knowledge of the accuracy or completeness of the information set forth in
the Schedule 13G, but have no reason to believe that such information is
not complete or accurate.
|
(17)
|
The
amount and nature of beneficial ownership of the shares held by JPMorgan
Chase & Co. is based solely on a Schedule 13G/A filed with the SEC on
February 2, 2009. The Schedule 13G/A indicates that such number
of shares includes 808,190 shares owned by Magenta Magic Limited c/o
JPMorgan Chase Bank, N.A.,
26/F Chater House, 8
Connaught Road, Central, Hong Kong. We have no independent
knowledge of the accuracy or completeness of the information set forth in
the Schedule 13G/A, but have no reason to believe that such information is
not complete or accurate.
|
-22-
(18)
|
The
amount and nature of beneficial ownership of the shares held by Fosun
Industrial Co., Ltd is based solely on the Form 4 filed with the SEC on
July 12, 2010. We have no independent knowledge of the
accuracy or completeness of the information set forth in the Form 4, but
have no reason to believe that such information is not complete or
accurate.
|
(19)
|
The
amount and nature of beneficial ownership of the shares held by BlackRock,
Inc. is based solely on the Schedule 13G filed with the SEC on
January 29, 2010. We have no independent knowledge of the
accuracy or completeness of the information set forth in the Schedule 13G,
but have no reason to believe that such information is not complete or
accurate.
|
(20)
|
Includes
137,250 unvested shares of restricted stock and 894,988 shares underlying
options that are currently exercisable or will become exercisable within
60 days.
|
-23-
ITEM
13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions
with Related Persons, Promoters and Certain Control Persons
Except as
set forth below, since April 1, 2009, there has not been any transaction, and
there is no currently proposed transaction, involving the Company and any of its
directors, executive officers, 5% stockholders or any members of the immediate
family of any of the foregoing persons, which transaction would be disclosable
pursuant to Item 404 of Regulation S-K as promulgated by the SEC.
The
Company has entered into a transaction with Fosun Industrial Co., Limited (the
“Investor”), which is the beneficial owner of more than 5% of the Company’s
Common Stock. As of June 14, 2010, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with the Investor and
Shanghai Fosun Pharmaceutical (Group) Co., Ltd (the
“Warrantor”). Pursuant to the Stock Purchase Agreement, the Company
has agreed to issue and sell to Investor up to 1,990,447 shares of the Company’s
common stock (representing approximately 10% of all outstanding common stock
after such sale, based on the number of outstanding shares as of the date of the
Stock Purchase Agreement) at a purchase price of $15 per share, for an aggregate
purchase price of approximately $30.0 million, the net proceeds of which are
expected to be used, among other things, to continue expansion of the Company’s
United Family Healthcare network.
The sale
of the shares of common stock to Investor would be completed in two closings,
each of which would relate to approximately one-half of the shares to be
purchased and be subject to certain customary closing conditions, including that
no material adverse change shall have occurred with respect to the
Company. In addition, the second closing is subject to the
consummation of a joint venture (the “Joint Venture”) between the parties to be
comprised of the Company’s Medical Products division and certain of Investor’s
medical device businesses in China. The initial closing is expected
to occur in the second quarter of the current fiscal year and the occurrence of
the second closing will depend on, among other things, the time required to
consummate the Joint Venture. The terms of the Joint Venture are
outlined in a term sheet contained in the Stock Purchase Agreement and remain
subject to the negotiation and execution of definitive
agreements. The Joint Venture is expected to include equity
participation bonus opportunities for existing Company executives in the event
of a qualified initial public offering or certain other events.
At the
initial closing under the Stock Purchase Agreement, the Company, Investor and
Warrantor would enter into a stockholder agreement (the “Stockholder
Agreement”). Under the Stockholder Agreement, until the first to occur of
(i) Investor holds 5% or less of the outstanding shares of common stock,
(ii) there shall have been a change of control of the Company as defined in
the Stockholder Agreement, and (iii) the seventh anniversary of the initial
closing, Investor has agreed to vote its shares in accordance with the
recommendation of the Company’s Board of Directors on any matters submitted to a
vote of the stockholders of the Company relating to the election of directors
and compensation matters and with respect to certain proxy or consent
solicitations. The Stockholder Agreement also contains standstill
restrictions on Investor generally prohibiting the purchase of additional
securities of the Company. The standstill restrictions terminate on
the same basis as does the voting agreement above, except that the 5% standard
would increase to 10% upon the second closing. In addition, the
Stockholder Agreement contains an Investor lock-up restricting sales by Investor
of its shares of the Company’s common stock for a period of up to five years
following the date of the Stockholder Agreement, subject to certain
exceptions.
Upon the
second closing under the Stock Purchase Agreement, Investor will have the right
to, among other things, nominate two representatives for election to the
Company’s Board of Directors, which will be increased to nine members, and
pledge its shares, subject to certain conditions. In order to induce
Investor to enter into the proposed transaction and without any consideration
therefor, each of the Company’s chief executive, operating and financial
officers, in their capacities as stockholders of the Company, has agreed to
certain limitations on his or her right to dispose of shares of the Company’s
common stock and to vote for the Investor’s board nominees.
The Audit
and Finance Committee of the Board of Directors is responsible for review and
oversight of all related party transactions. Officers and directors are
regularly reminded of their obligation to seek committee approval of any related
party transaction or potential conflict of interest. The Audit and
Finance Committee considers all factors that it deems relevant, including the
nature of the related party’s interest in the transaction, whether the terms are
no less favorable than could be obtained in arms-length dealings with unrelated
third parties, and the materiality of the transaction to the
Company.
-24-
Director
Independence
We
believe that independent directors play a critical role in governing the
Company, and we are committed to ensuring that a majority of our directors are
independent. Currently four of our seven directors satisfy the independence
requirements of The Nasdaq Global Market’s listing standards. Under
these standards, a director is not independent if he or she has certain
specified relationships with the Company or any other relationship that in the
opinion of the Board of Directors would interfere with his or her exercise of
independent judgment as a director. The independent directors are:
Ms. Harris, Ms. Kaufman, Mr. Nilsson and Mr. Oestreicher.
In
addition to the Board’s determination that four of the seven nominees for
election meet the foregoing independence standards, the Board has also
determined that each member of our Audit and Finance Committee, our Governance
and Nominating Committee and our Compensation Committee is independent under
these standards. These determinations were made after reviewing all
relevant transactions and relationships between each director and any of his or
her family members, on one hand, and the Company, our senior management and our
independent auditor, on the other hand.
-25-
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
following table shows the fees we paid to BDO USA, LLP during the last two
fiscal years:
Fiscal
Year
Ended
March 31, 2010
|
Fiscal
Year
Ended
March 31, 2009
|
||
Audit
Fees:
(a)
|
$ 894,000
|
$ 1,094,000
|
|
Audit-Related
Fees: (b)
|
5,000
|
5,000
|
|
Tax
Fees:
(c)
|
0
|
0
|
|
All
Other Fees:
(d)
|
0
|
0
|
|
Total
|
$ 899,000
|
$ 1,099,000
|
_______________
(a)
|
Represents
fees for professional services provided in connection with the audit of
our annual financial statements (including services incurred with respect
to rendering an opinion under Section 404 of the Sarbanes-Oxley Act of
2002) and review of our quarterly financial statements, advice on
accounting matters that arose during the audit, and audit services
provided in connection with other statutory or regulatory
filings. The fees for the fiscal year ended March 31, 2009 also
include fees incurred for review of a registration statement and
additional fees for accounting consultations and information systems
reviews.
|
(b)
|
This
represents fees for assurance and related services related to the
performance of the audit or review of financial statements that are not
included in audit fees reported in
(a).
|
(c)
|
Represents
fees for tax compliance, tax advice, and tax
planning.
|
(d)
|
Represents
fees billed for products and services provided by the principal
accountant, other than the services reported in (a), (b) and
(c).
|
The Audit
and Finance Committee has determined that the provision by BDO USA, LLP of
non-audit services is compatible with maintaining the independence of BDO USA,
LLP. In accordance with its charter, the Audit and Finance Committee
approves in advance all audit and non-audit services to be provided by BDO USA,
LLP. In certain cases, the Audit and Finance Committee may delegate
authority to pre-approve non-audit services on a preliminary basis to one or
more members of the Audit and Finance Committee, provided that such
pre-approvals are communicated to the full Committee at its next
meeting. During fiscal 2010, all services were pre-approved by the
Audit and Finance Committee in accordance with this policy.
-26-
PART
IV
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
The
following exhibits are filed as part of this Report:
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.3
|
Certification
of Principal Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350.
|
|
32.3
|
Certification
of Principal Accounting Officer pursuant to 18 U.S.C. Section
1350.
|
-27-
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this
Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHINDEX INTERNATIONAL, INC. | |
Dated:
July 29, 2010
|
By: /s/ Lawrence Pemble
|
Lawrence
Pemble
|
|
Executive
Vice President, Finance and Chief
Financial Officer
(Principal
Financial Officer)
|
|